Question

Which of the following statements is NOT CORRECT? a. The IRR method takes into account the...

Which of the following statements is NOT CORRECT?

a.

The IRR method takes into account the time value of money
b.

The IRR method values a dollar received today greater than a dollar that will be received until sometime in the future
c.

The IRR method takes into account the cash flows over a project’s full life
d.

The IRR method assumes that the cash flows to be received from a project are to be reinvested at the WACC
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Answer #1

IRR is the rate of return earned over the full priject life. In other words, it is the Discount Rate at which NPV i.e. Net Present Value is 0.

As, it considers NET Present Value i.e. Initial Investment and all Future Cash Flows. And, it considers PRESENT VALUE.

It considers Time Value of Money.

It values dollar received today more than received in future.

It takes into account full project life.

It assumes that Cash Flows are reinvested at IRR ITSELF and NOT WACC.

Therefore, Option (d) is Incorrect.

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